There’s no question that stablecoins are having a moment, driven in large part by the passage of the GENIUS Act this past summer, giving the United States its first-ever stablecoin regulation.
The excitement has transcended the crypto industry, as some of the biggest banks in the world are weighing the possibility of launching a stablecoin.
Bank of America CEO Brian Moynihan even told Bloomberg TV back in February that if the US government legalized it, then BofA would issue its own stablecoin.
“A dollar-backed stablecoin would be no different than a money market fund,” he said. “And so if they make that leap, we’ll go into that business.”
But on Citigroup’s third-quarter earnings call on Tuesday, CEO Jane Fraser said that there has been “an overfocus on stablecoins at the moment” in response to an analyst’s question about the pace of the bank’s stablecoin adoption.
Instead, Fraser sees more client demand for tokenization.
“For our client base, the institutional client base, we see tokenized deposits as delivering what the client needs, and this is an area that we've invested in most heavily,” Fraser said.
“And what the clients are after is real-time money movement with minimal to no friction and low cost.”
She noted that Citi has been driving innovation in digital assets for “many years” and that the bank sees tokenization as the best fit for the needs of institutional investors.
“They want interoperable, multibank, cross-border, always on payment solutions,” Fraser said.
“They want it provided in a safe and sound manner, and they want all the complexities solved for them: compliance, reporting, accounting, tax, AML (anti-money laundering). That, frankly, is best done by tokenized deposits.”
Tokenization carries less ‘friction’ than stablecoins
To be sure, Fraser isn’t bearish on stablecoins, noting that the bank is “considering issuing our own true Citi stablecoin.”
However, “as a major payments player, most of this is going to get sold by the tokenized deposit capabilities,” she added.
“We will stand ready to support our clients' needs, whatever they are,” Fraser said. “We view stablecoin as another option in the overall digital asset tool kit.”
In fact, Citigroup released a report in September in which it revised its stablecoin total issuance base case forecast from $1.6 trillion to $1.9 trillion, with a bull case scenario also revised up to $4 trillion from $3.7 trillion.
The bank cited “strong growth of the market in the past six months and the wide range of project announcements, in the U.S. and internationally” for its revisions.
But Fraser explained on the earnings call that stablecoins have “more friction because of the on-off ramp.” Unlike tokenized deposits, stablecoins carry “friction” when it comes to taxes, accounting, and AML, she said.
Citi’s investments in the digital asset space includes establishing its own 24/7 US dollar clearing network. Fraser said that the bank’s tokenized services are now able to link to 250 banks in more than 40 markets.
She noted that one of the issues holding back many in the traditional finance world from broader digital asset adoption is that most corporate treasuries are not yet built to handle the 24/7 crypto banking market.
Fraser isn’t the only bank executive who’s bullish on tokenization. In his annual letter to investors earlier this year, BlackRock CEO Larry Fink called the tokenization of assets “a revolution in investing.”
“Markets wouldn't need to close. Transactions that currently take days would clear in seconds,” he wrote.
“And billions of dollars currently immobilized by settlement delays could be reinvested immediately back into the economy, generating more growth.”
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